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HSA Plans: Reducing Your Employees’ Fear of High Deductibles

Health Savings Account (HSA) adoption and expansion rates have hit a record high—spanning well over 22 million active HSA accounts holding about $45.2 billion in assets—up from $37 billion at the end of 2016, according to the “2017 Year-End Devenir HSA Research Report.

It all makes sense considering HSA plans tend to benefit both parties, employer and employee, respectively. The premiums are generally lower than the more traditional plans. And, assuming that you are set up to allow for pre-tax deductions by your employees, you can reduce the FICA match of their salaries for however much they deduct through payroll.

However, from the employee’s perspective, the higher deductibles associated with an HSA can be quite unnerving for many. But as an employer, you have the ability to eliminate the scare factor by considering some interesting practices to make the transition from a traditional copay plan to the Qualified High Deductible Health Plan (QHDHP) more appealing.

For starters, the easiest way to put your employees’ minds at ease is for you to contribute to their HSA to provide a cushion.

Conversely, if you decide to go this route, the most important thing that you need to keep in mind in regards to your employees’ HSA is that all money contributed to an HSA for your employee is their money—regardless of the source of the money. Therefore, if you make contributions to your employees’ HSA, you should consider it a bonus in your mind—although it is not a bonus for tax purposes—since you will not be able to get this money back.

If you choose to fund your employee’s HSA, one way to help protect the company’s assets, particularly in the first year, is to offer the HSA as a “buy down” option and take the difference in premium and contribute it to the HSA.

Hypothetically speaking, if you were only going to offer the PPO plan for your employees, and you were contributing $598.72 per month to the employee’s premium. If you budgeted for this expense, you could offer the HSA to the employees at the cost of $464.20 per month and take the difference ($134.52 per month) and put that into the HSA for each employee. This way, you have met your budget, and given a cushion of $1,614.24 for the year to your employees. If you make this contribution on a periodic basis (per paycheck, monthly, and quarterly) rather than at the beginning of the year, you control the company risk significantly.

Another option would be to offer a match of employee contributions.

You may only use this option if you have a Section 125 plan established. Not only does this reduce both employee and employer cost, but will also get employees engaged in their HSA. Let’s assume the above example where you are contributing $134.52 into the HSA still applies. Using this method, you would match whatever the employee contributed up to the $134.52. Keep in mind that I am only using this dollar amount as an example; you may set the amount to whatever limit you choose.

The alternatives we have discussed so far require you as the employer to give money to your employees in the form of contributions to the HSA. While this is a very generous way for you to go, it is not always the most economical way to soften the high deductible impact on your employees.

One thing that you may want to consider is attaching a Post-Deductible Health Reimbursement Arrangement (HRA).

HRA’s are designed to allow employers to reimburse their employees for medical expenses only after they have been incurred. In other words, if there are no claims, you will not have to spend any money.

The way HSA laws are written, there is a minimum deductible that must be met in order to be considered a qualified plan. For 2018, the minimums are $1,350 for an individual and $2,700 for a family (remaining the same for individual and family in 2019). Keep in mind that on average individual spends $687.08 on healthcare costs per year.

COVERAGE

PPO 30/70

PPO HSA 3000/6000

TYPE

Emp Only
Emp/Child
Emp/Children
Emp/Spouse
Family

TOTAL

ER

EE

$598.72 $464.20 $134.52
$817.85 $464.20 $353.65
$1,217.19 $464.20 $752.99
$1,341.13 $464.20 $876.93
$1,847.04 $464.20 $1,382.84

TOTAL

ER

EE

$464.20 $464.20 $0.00
$643.10 $464.20 $169.90
$943.73 $464.20 $479.53
$1,039.82 $464.20 $575.62
$1,432.07 $464.20 $967.87

BENEFITS

Deductible (Ind./Family) $1,000/$2,000 $3,000/$6,000
Coinsurance 70%/30% None
Maximum out-of-pocket (Ind./Family) $3,500/$7,000 $3,000/$6,000
Primary Care/Specialist $30 copay Deductible
Diagnostic Services Deductible then coinsurance Deductible
Urgent Care $30 copay Deductible
Outpatient Surgery Deductible then coinsurance Deductible
Emergency Room Deductible then coinsurance Deductible
Inpatient Hospital Care Deductible then coinsurance Deductible
Prescription Drugs $10/$30/$50 Deductible
Mail-Order RX Benefit $10/$60/$150 Deductible

If you use the above example plan option with a $3,000 individual and $6,000 family deductible and you set up an HRA where the employee is responsible for the first $1,500 individual/$3,000 family (half of the deductible) and you as the employer establishes an HRA that pays the last $1,500 individual/$3,000 family of the deductible; you would only hit your portion of the deductible a few times a year.

On top of this, your employees will still be able to contribute to their HSA’s and you will still get those FICA savings if you did this via pre-tax payroll deductions. By using this method, you have significantly reduced your risk as an employer, drastically reduced the risk that your employees face, and given your employees a way to put funds away—tax-free—for qualified expenses.

There is a lot of flexibility in using the Post-Deductible HRA and the potential for savings is evident. If you are interested in offering an HSA plan, speaking with your OneDigital consultant and tax consultant to make sure that you are getting the best options in place for your company should be your next decision.

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